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What happens if USDC depegs from $1?
What happens if USDC depegs from $1?
Updated over a week ago

In the event that USDC depegs from its $1 value on Lyra V2, there are specific mechanisms in place to address the potential impact on the platform's margin requirements. The key mechanism is the 'Depeg Contingency,' which is an additional margin conditionally required to protect against the depegging of USDC. Here's how it works:

  1. Increased Initial Margin Requirement: The 'Depeg Contingency' leads to an increase in the initial margin requirement for traders. This means traders need to post more collateral to open or maintain positions when USDC's value deviates significantly from $1.

  2. Calculation of Depeg Contingency: The contingency is calculated based on the extent of USDC's deviation from its peg. For example, if USDC depegs to $0.98, the platform adjusts the margin requirements accordingly to offset the increased risk.

  3. Impact on Open Positions: While the 'Depeg Contingency' primarily affects the initial margin requirements (i.e., for opening new positions), it can also impact existing positions if the deviation leads to a significant change in the value of USDC holdings used as collateral.

  4. Risk Management: This mechanism is part of Lyra V2's broader risk management strategy, ensuring the platform remains stable and secure even under market stress conditions, such as a stablecoin depegging.

  5. Dynamic Adjustment: The platform dynamically adjusts margin requirements based on real-time market conditions and the behavior of USDC's price relative to its peg.

By incorporating the 'Depeg Contingency' into its margin system, Lyra V2 aims to mitigate the risks associated with the depegging of USDC, thereby protecting the platform and its users from potential adverse effects.

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